Red tape, lack of funding, legal compliance slows SME growth

1 Oct 2015

The South African Institute of Chartered Accountants (SAICA) has released its annual SME Insight Survey, which provides meaningful insights into SMEs' frustrations and current attitudes to entrepreneurship.

Red tape, lack of funding and compliance with legislation continue to be the main challenges faced by most SMEs in South Africa. The survey also offers suggestions on how to improve the business environment for SMEs.

Red tape, lack of funding, legal compliance slows SME growth

Survey highlights

SME success increases with mentorship and technical assistance, and one of the best sources of mentoring for new SMEs may be other, more experienced SMEs.

Policymakers should reduce red tape.

If government wants to do more business with SMEs, it will have to improve payment terms and simplify the tender process.

B-BBEE legislation should be the gateway to faster growth of SMEs but for most, it is not the case.

The number of people employed by SMEs grows rapidly with turnover, and with the length of time that an SME survives.

Many a SME shareholder combines the role of chairperson of its board, sole director, and CEO. This facilitates flexible decision-making, but leads to poor governance.

The main reasons for SME failure are cash flow-related.

SMEs indicated that they consider their most difficult obstacles to doing business to be:

Red tape

Obtaining finance

VAT registration

Compliance with legislation

Finding customers

High response to survey

The 2015 survey attracted the participation of more than 1300 business owners (compared to 800 in the 2014 survey), which proves the extent to which SMEs desire a platform to raise their concerns.

The National Development Plan (NDP) tasks SMEs with creating 90% of new employment opportunities by 2030. This is a tall order, and a thorough understanding of this sector would place government, small and medium practices (SMPs) and SMEs themselves in a better position to succeed and contribute meaningfully to job creation.

Terence Nombembe, CEO, SAICA said, "By collecting these insights and investigating the findings, our aim is to influence policymakers in creating a more enabling SME environment and to demonstrate the ways in which SMPs can better assist their SME clients."

Bridgitte Kriel, Project Director for Practice at SAICA, added "The 2015 survey results will be shared with various government departments and further used to determine how policies toward this sector can be influenced. This information is shared with the intention of promoting healthy growth and sustainability in the sector."

According to Nombembe, "The report distinguishes between external factors such as red tape, procurement processes, payment terms that impact SMEs -- and the internal factors such as SME owners being directors and CEOs at the same time, resulting in easy decision-making but governance is questionable and poor cash flow management are some of the internal factors within their control."

Among others, this differentiation highlights the ways in which SMPs can assist SMEs to survive and grow. The report was made possible with the assistance of DotNews and Sage Pastel. "We thank them for their support. This demonstrates the positive effect of collaboration between organisations, and the way in which it unlocks infinite possibilities positively to contribute to the economy and the NDP," concludes Kriel.

Access the full survey results.